Well, it’s been several days now since the IRS opened the “flood-gates” for e-filing, but we are all asking, “Where are the customers?” Business has been very slow for most of us. Is it because some many were out of work last year? I do not know the answer to that question. If you are one of those who was out of work for most of – or, all of - the past year, you may still have to file a return. I’ll address that later, however.
Let’s talk about Earned Income Tax Credit (EITC) for a few moments, shall we? The EITC has been around for some 30 years, with its roots beginning back in the first Reagan term. IRS Pub 596 has a wealth of information on the subject (may be even a little more than you really wanted to know!). This is the most common “refundable” credit, meaning the taxpayer may get a refund regardless of their tax liability. To qualify, the first thing is the taxpayer must have “earned” income. We call that “sweat-of-the-brow” income – this is income that you WORKED for! Typically, this is wages, or tips, or self-employment income. Savings account interest, dividends, unemployment, pension, and Social Secuity income is considered “unearned” income.
You must be over the age of 24 and under 65, or be filing Married Filing Jointly, Head of Household, Single or Qualifying Widow(er) with a qualifying child. A “qualifying child” must be related to the taxpayer, under the age of 19 or under 24 if they are a full-time student for at least 5 months of the previous year, have lived with the taxpayer more than half of 2012, and the “qualifying child” cannot file a joint return for the year. Boy, that’s a mouthful, isn’t it?
Now, those are general rules, and, of course, you should always consult your tax advisor about your particular situation.
This year there are new rules pertaining to “Due Diligence Requirements” for paid preparers. Those requirements are contained in Form 8867. You may be asked to provided some additional documentation if you are claiming children for the EIC.
Please feel free to contact me with your questions or comments regarding this subject.
Raymond D. Nations, EA
Liberty Tax Service
If you find yourself in the lion’s den with the IRS,
Call me, Raymond D. Nations, Enrolled Agent, and I’ll tame that mess!